E15-18 Analyzing the ability to pay liabilities [15–20 min]
Large Land Photo Shop has asked you to determine whether the company’s ability to
pay current liabilities and total liabilities improved or deteriorated during 2012. To
answer this question, you gather the following data:
Cash . . . . . . . . . . . . . . . . . . . . . . . $58,000 $57,000
Short-term investments . . . . . . . . . 31,000 —
Net receivables . . . . . . . . . . . . . . . 110,000 132,000
Inventory . . . . . . . . . . . . . . . . . . . 247,000 297,000
Total assets . . . . . . . . . . . . . . . . . . 585,000 535,000
Total current liabilities . . . . . . . . . 255,000 222,000
Long-term note payable . . . . . . . . 46,000 48,000
Income from operations . . . . . . . . 180,000 153,000
Interest expense . . . . . . . . . . . . . . 52,000 39,000
Requirement
1. Compute the following ratios for 2012 and 2011:
Current ratio
Acid-test ratio
Debt ratio
Debt to equity ratio
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